How Do You Charge for Professional Accounting Services?
The accounting industry is changing dramatically. Innovation and technology are rapidly changing the very basics of how bookkeepers and accountants fulfill their duties to their clients. As we see the cloud emerging and expanding in practices, we need to revisit how we have traditionally charged for professional services.
Why? Simply put, the more efficient we are, the less time we spend on files. If we are charging for the hours we spend, we need to find new ways to justify our value to clients. In this blog post, I will cover the basics of billing and pricing.
Billing Versus Pricing
Billing is the act of putting a price on our service after we have completed it. Pricing, on the other hand, focuses on the value to the client and is discussed in advance of the work being done. Billing often results in sticker shock … as clients are presented with a bill after the fact, they are literally held hostage to the time that we spent on the service – not the actual outcome of the service. Pricing is the polar opposite of billing, as the client knows up front what they can expect to pay for services.
- Hourly Billing – Most accountants are familiar with this basic concept. Hours worked are multiplied by an hourly rate to determine a fee. Then, there are hourly billing attempts to recover the cost of the service plus an implied profit. There is an inherent conflict with our client – they want us to do things as quickly and cheaply as possible, while we need the time to do things properly.
- Value Billing– I have seen this commonly used in many accounting firms in my day. The hourly billing fee is reviewed (after the fact) to determine the likelihood that the client is willing to pay the bill. The accountant adjusts the bill based on their perception of what the client would consider “reasonable.” Write-ups and write-downs are the language of value billing. In my experience, most accountants overreact to billing pain and often negotiate discounts for their clients without even being asked.
- Fixed Fee Pricing – Based on the expected level of work and a strong knowledge of actual costs, the accountant negotiates a fixed price with the client up front. There is risk here that we may underestimate our costs, thus losing margin. This can be mitigated by including a regular review in our contracts with the client. Client relationships are stronger when we are spending more time learning their needs. Incidentally, client perception of value is determined based on the peace of mind that we offer, not the time that we spend on a given file.
- Value Pricing – This is the ultimate pricing model for maximizing firm profits. Essentially, each client is charged the maximum that they are willing to pay for a service. The accountant identifies the client’s needs, assesses their perception of value and then determines the price. Value pricing typically yields the highest possible fees because you are charging each client a unique price for the services that they receive.
How Should I Charge?
I prefer pricing over billing, simply because pricing focuses on communication and client perception of value. In my experience, pricing builds stronger client relationships. As we implement technology and improve our internal efficiencies, we need to revisit how we charge for our services. Fixed fee pricing is easy to implement – you simply create a menu of services that you offer and create a custom fee for each client based on the mix of services that they need.
While value pricing is more profitable, it is also harder to implement because you need to become comfortable discussing pricing and needs with your clients. From those that have changed, I find that the firms that have implemented fixed fee pricing found the implementation to be much easier. Those that have chosen to pursue value pricing find it more profitable but have more work to do before a prospect becomes a client.
Look at your services and determine which pricing model is best for you.